Alex Tabarrok at the Marginal Revolution blog analyses the huge price disparities in tuition for people of different income brackets here. This reduces income inequality and opportunity, but it punishes the incentive to work and those having more children.
“At many private colleges and universities it is not unusual for some students to be paying $70,000 per year while others pay less than $5,000, for exactly the same education.”
I wonder how much effect this disincentive has on the overall economy?
“Let’s take a closer look at an Upper-Middle income parent earning $122 thousand per year. If this parent gets a promotion or takes on extra work that bumps their salary by $64 thousand, they move from being Upper-Middle income to Affluent. At least on paper. At an income of $122 thousand the parent will be paying approximately $35 thousand to send their child to college but at $186 thousand they will have to pay $70 thousand for the same college so the increase in salary of $64 thousand is an effective increase of only $29 thousand. If the Upper-Middle income parent has two children in college, earning more money actually results in a net loss. For an Upper-Middle income family with two kids spaced in age a few years apart the education tax could be a very severe work disincentive for up to a decade.”